Local fund houses seek Sebi approval to launch international feeder funds

Slowdown-hit Funds Plan Return Trip Overseas

Indian fund houses are trying to cash in on the opportunity for international funds amid waning returns from local markets. Encouraged by the robust returns, many fund houses are increasingly investing beyond the boundaries to tide over the local downtrend.

Leading fund houses, including DSP Blackrock, JP Morgan Mutual Fund, Deutsche Mutual Fund, and Franklin Templeton, have sought approval from the capital market regulator Sebi to launch international feeder funds. JP Morgan Asean equity offshore fund is currently raising money from the market. An international fund is a fund that can invest in companies located anywhere outside its investors' country of residence. A feeder fund is one that invests through another fund called the master fund. "It'll be naive on the part of investors to think that Indian assets will fulfill their overall return requirements. There are several good opportunities worldwide. International exposure will help investors diversify their investment portfolios regionally," said Pankaj Sharma, head-products and risk team, DSP Blackrock MF. Investors should remain invested for at least 18-24 months to benefit from these funds, he said. In the past one year, international funds were one of the best performing fund categories in India with average returns of 13-15%. Some of the fund houses that have sought regulatory clearance include JP Morgan with its America Large-cap Equity Fund, Franklin Templeton's US Opportunities Fund, Deutsche that plans to launch an offshore gold and precious metals fund and DSP Blackrock for its five feeder schemes around themes such as global allocation, global dynamic equity, Chinese equities, Latin American equities, and world agriculture. "We're a product company and our endeavor is to provide investors several investment options," said Mr Sharma. Indian indices are lagging their Asian peers due to deteriorating macroeconomic fundamentals such as high inflation that is posing a threat to growth. Also, rising global commodity prices, including copper, crude oil, and rubber, weighed on Indian shares while it proved beneficial for international funds. Markets in Brazil, China, Russia, Peru, South Africa, Nigeria, and Mexico performed better than Indian equities in the past one year helped by rising prices of commodities such as crude oil, coal, copper, aluminium, silver, and iron ore. In a good market year like 2009, Indian shares with 103% returns underperformed Brazilian stocks that gained 127%. Also, economic recovery in developed markets such as the US is prompting several fund houses to tap their potential for returns. Franklin Templeton and JP Morgan are planning to launch funds that will invest in the US markets. "Franklin US Opportunities Fund will help Indian investorsbenefit from the economic recovery in the US. Investors will also benefit from global operations of American companies," said Harshendu Bindal, president, Franklin Templeton Investments. "We expect demand for global products to increase as returns from Indian markets will normalise in the coming years. Historical experience suggests that the top performing markets change from year to year. Investors should diversify their investment portfolios. Such a strategy will eliminate chance of missing good opportunities," Mr Bindal said. International funds such as DSPBR World Energy Fund, DWS Global Agribusiness Fund, DSPBR World Mining Fund, and Fidelity Global Real Assets Fund gave average returns of about 20% in the past one year. "While it will be difficult for fund marketers to collect large sums of money from one market, they are launching feeder funds in different markets and pool in money and then strengthen asset base of the main fund," said the channel head of a bank-promoted fund house.